2018 (3) TMI 728 - AT - Income Tax

Expenses incurred in cash in excess u/s 40A(3) added to the income of the assessee which is untoward & liable to be deleted - Held that - The assessee filed copy of the confirmation from M/s. Kalra Bus Service, Jaipur with regard to supply of diesel. This confirmation states that diesel were supplied in drums. As per this confirmation none of the payments in a day exceed ₹ 20,000/-. The confirmation filed by the assessee is admitted as an additional evidence for the purpose of adjudicating the issue involved in the appeal. The AO did not have the benefit of looking at the additional evidence. The addition confirmed by the CIT(A) is set aside and the issue is remanded to the AO for fresh consideration. We may also add that before the AO and CIT(A) the expenditure of ₹ 4,44,527/- was stated to be for purchase of spare parts of the truck. Now a different stand is taken by the assessee. This aspect may also be taken note of by the AO in the set aside proceedings. Addition u/s 40(a)(ia) - tds u/s 194C - payments made to M/s. Kathat Freight Services towards supply of labour - Held that - Before us the limited prayer for the assessee was to set aside the order of CIT(A) and remand the issue to the AO to enable the assessee to show before the AO that M/s. Kathat Freight Services had shown receipts from the assessee in the return of income filed for the relevant assessment year. The prayer for the assessee is based on the second proviso to section 40(a)(ia) which provides that if the payee has shown the receipts from the assessee in his return of income and paid tax on such receipts and has furnished in the return of income then no disallowance can be made u/s 40(a)(ia) should be made. This proviso was inserted by the Finance Act, 2012 w.e.f. 01.04.2013. This amendment was held to be applicable retrospectivley in the case of Anasal Land mark Township (P)Ltd (2015 (9) TMI 79 - DELHI HIGH COURT)). Disallowance of wages - Held that - Addition sustained by the CIT(A) deserves to be deleted because the books of accounts have been produced along with the vouchers by the assessee before the AO. Specific instances of unverifiable vouchers was not pointed out by the AO . Thirdly, the AO did not even call upon the assessee to show cause as to why disallowance should not be made before making the disallowance. For these reasons the addition sustained by the CIT(A) is directed to be deleted.

Summary

Issues:
1. Interpretation of section 40A(3) of the Income Tax Act, 1961 regarding cash expenses exceeding Rs. 20,000.
2. Disallowance of payment for wages under section 40(a)(ia) for failure to deduct tax at source.
3. Disallowance of wages based on estimation without specific instances of unverifiable vouchers.

Analysis:

Issue 1:
The appeal involved a partnership firm acting as a Del Credre agent making cash payments exceeding Rs. 20,000 for lorry expenses. The Assessing Officer (AO) disallowed the expenses under section 40A(3) of the Act. The firm argued that each payment was below Rs. 20,000 and supported by cash memos, claiming exceptions for payments without banking facilities. However, the AO found no valid exceptions and disallowed the expenses. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The Tribunal admitted additional evidence showing that payments did not exceed Rs. 20,000 in a day, leading to setting aside the addition and remanding the issue to the AO for fresh consideration.

Issue 2:
Regarding the disallowance of Rs. 1,10,000 for wages paid without tax deduction under section 40(a)(ia), the AO disallowed the amount as TDS was not deducted. The firm sought to invoke the second proviso to section 40(a)(ia) showing that the payee included the receipts in their income tax return. The Tribunal agreed that the amendment was retrospective and remanded the issue to the AO for reconsideration based on the submissions made.

Issue 3:
The AO disallowed Rs. 2,50,000 for wages based on cash payments without verifiable vouchers. The CIT(A) reduced the disallowance to Rs. 1,00,000, finding the original amount excessive without specific instances of unverifiable vouchers. The Tribunal agreed that the disallowance was based on estimation and lacked proper verification procedures. As the AO did not provide an opportunity to the firm to address the disallowance, the Tribunal directed the deletion of the sustained addition.

In conclusion, the Tribunal partially allowed the appeal, directing the deletion of disallowances based on lack of verifiable vouchers and remanding other issues for fresh consideration by the AO.